Craniofacial malformations, including a range of forebrain defects collectively known as holoprosencephaly (HPE), are the most common birth defects that occur in humans. The variation in the characteristics defining HPE suggests that multiple genes contribute to the syndrome. Mutation of the gene for sonic hedgehog (Shh), a signaling protein known for its crucial role in patterning tissues, including structures of the face, brain, spinal cord and eye has been shown to cause HPE. A HPE phenotype has also been described in mice that are deficient in the expression of megalin, an endocytic receptor related to the LDL receptor. Our studies have revealed previously unknown relationships between megalin, Shh and the Shh receptor, patched-1 (Ptc-1). These include the findings that megalin binds Shh and mediates its endocytosis and that megalin also influences subcellular trafficking and proteolytic processing of Ptc-l. W8 therefore hypothesize that megalin activity is an integral part of the mechanism by which Shh acts to control craniofacial morphogenesis. To test this hypothesis, experimentation is proposed to investigate megalin-mediated intracellular trafficking of Shh. Our results indicate that megalin-internalized Shh bypasses lysosomes. Given the fact that megalin is known to mediate transcytosis of several ligands; a major emphasis is to determine if megalin mediates transepithelial transport (transcytosis) of Shh. Such transcytosis would represent a novel mechanism to explain long range Shh signaling during development. Experimentation will also focus on establishing the relationship between megalin and Ptc-1, including characterization of the role of megalin in regulating targeting of Ptc-1 to lysosomes and proteolytic processing of Ptc-l. Proteolytic processing of Ptc-1 is a new observation that is made more interesting by our finding that a carboxy-terminal fragment of Ptc-1 is translocated to the nucleolus, suggestive of a role in regulation of gene expression. Additional experimentation is directed towards establishing the role of megalin in regulating Shh-dependent gene expression important for eye development and neuron specification. The proposed experimentation is expected to lead to new insights into the mechanism by which Shh signaling controls craniofacial development.